RBI allays foreign banks' fears on stamp duty

Says foreign banks exempt from stamp duty for wholly-owned subsidiaries

The Reserve Bank of India (RBI) today clarified that foreign banks opting for subsidiarisation here will not have to pay capital gains tax and stamp duty for converting their branches into wholly-owned subsidiaries (WOS).

"In this context it may be indicated that government of India has inserted, by the Finance Act, 2012, a new chapter XII-BB titled 'Special Provisions relating to Conversion of Indian Branch of a Foreign Bank into a Subsidiary Company' in Income Tax Act, 1961, inter alia, exempting capital gains arising from such conversion from capital gains tax, with effect from April 1, 2013," the banking regulator said in a notification.

It further added that applicable stamp duty on converting foreign bank branches into WOS will also be waived. "As regards applicability of stamp duty in the case of conversion of existing branch of a foreign bank into a wholly owned subsidiary, a new section '8E' has been inserted in Indian Stamp Act, 1899 vide Banking Laws (Amendment) Act, 2012 notified in Gazette of India Notification dated January 18, 2013, exempting from stamp duty any conversion of a branch of a foreign bank into wholly owned subsidiary or transfer of shareholding of a bank to a holding company in terms of the scheme or guidelines of RBI," the central bank said.

Most foreign lenders had said they will await clarity on tax sops and stamp duty relaxations before deciding on subsidiarisation after RBI released its framework for setting up WOSs of foreign banks in India.